INVESTING FOR SUSTAINABLE GLOBAL FISHERIES

With support from:

Bloomberg Philanthropies’ Vibrant Oceans Initiative

The Rockefeller Foundation

Executive Summary

Introduction

Small-Scale Fisheries Investment Blueprints

The Mariscos Strategy

The Mangue Strategy

The Isda Strategy

Industrial-Scale Fisheries Investment Blueprints

The Merluza Strategy

The Sapo Strategy

National-Scale Fisheries Investment Blueprint

The Nexus Blue Strategy

ENCOURAGE CAPITAL PUBLICATION DISCLAIMER

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CONTENTS

The Mangue Strategy 1

The Mangue Strategy 2

Key Value Drivers 5

Profile of the Mangue Strategy Fisheries 6

Current Regulatory Framework 8

Condition of Mangrove Crabs in Brazil 9

Socioeconomic Context 9

The Current Supply Chain 10

The Mangue Impact Strategy 13

Impact Investment Thesis 13

Step 1: Secure Government Commitments 14

Step 2: Fisheries Management Improvements 15

The Fisheries Management Plan 15

Sustainable Fishing Rewards Program 16

Fishery Management Improvements Budget 19

Targeted Social and Environmental Impacts 19

The Mangue Strategy Commercial Investment Thesis 21

Step 3: The Launch and Expansion of CEB 21

Value Proposition 21

Company Description and Mission Alignment 22

Launch and Growth Strategy 22

Management Team and Track Record 26

Domestic Market Trends 26

Competition 26

Domestic Competition 26

International Competition 27

The Mangue Strategy Financial Assumptions and Drivers 28

Revenue Model 28

Product Pricing 30

Cost Structure 31

Gross Profit and EBITDA Margins 31

Transaction Structure 32

Sources and Uses of Funds 32

Ownership Structure and Governance 34

Summary of Exit and Returns 35

Sensitivity Analysis 36

Key Risks and Mitigants 37

Appendix 41

FIGURES

FIGURE 1: Map of Pará State, Brazil 2

FIGURE 2: The Mangue Strategy Resex Areas 7

FIGURE 3: Regional Extraction Clusters, Sourcing Hubs, and Logistics Strategy for

The Mangue Strategy in Pará, Brazil. 7

FIGURE 4: Official Brazilian Government Landings Statistics for Mangrove Crab, 2001–2007 9

FIGURE 5: Estimated Markup of Mangrove Crab Prices 11

FIGURE 6: Total and Individual Markup (%) in the Pulp Crabmeat Commercialization Chain

on the Braganca and Belém Markets in 2003 12

FIGURE 7: Sustainable Fishing Rewards Program (FCT and Premiums) 18

FIGURE 8: Fisheries Management Improvements Expenses 19

FIGURE 9: Total Estimated Sourced Volume of Raw Materials (mt) 23

FIGURE 10: Crab Product Forms and Markets 24

FIGURE 11: Primary Crab Export Markets 25

FIGURE 12: International Competition 27

FIGURE 13: Competitor Crab Species 27

FIGURE 14: CEB Sales by Destination (USD) 28

FIGURE 15: CEB Domestic Sales by Product Type (USD) 29

FIGURE 16: CEB Exports by Product Type (USD) 29

FIGURE 17: International Crab Price Reference Points 30

FIGURE 18: Domestic Crab Price Reference Points 30

FIGURE 19: CEB Projected Operating Cost Allocation 31

FIGURE 20: CEB Projected Cost of Goods Sold Breakout 31

FIGURE 21: CEB Projected Gross and EBITDA Margins 31

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Note: While the Mangue Strategy is based on analysis of actual communities, fisheries, and commercial business opportunities, Encourage

Capital has synthesized these findings into a single investment strategy to be used as a roadmap for stakeholders interested in sustainable,

small-scale fisheries impact investing. As such, some of the commercial and programmatic entities referenced herein are hypothetical and

have been assigned fictitious names. Wherever this is the case, the hypothetical entities will be clearly identified.

THE MANGUE STRATEGY

Encourage Capital has worked with support from Bloomberg Philanthropies and The Rockefeller Foundation to develop an impact investing strategy supporting the implementation of sustainable management and extraction practices in a small-scale fishery in Brazil. The Mangue Strategy (Mangue) is a hypothetical $15 million impact investment to protect the mangrove crab (Ucides cordatus) fishery in the Brazilian state of Pará.

This $15 million investment would fund the implementation of critical management improvements across the fishery, and be used to launch a crab export business with a network of buying stations and a modern processing facility designed to meet both domestic and international food safety standards. The Mangue Strategy has the potential to generate a 12.0% levered equity return while protecting the mangrove crab stock biomass from current and future overfishing, enhancing up to 1,300 fisher livelihoods across 10 extractive reserves (RESEXs), and providing an additional 2.4 million seafood meals to market annually by Year 9. Additionally, the strategy would support the sustainable management of up to 300,000 hectares of critical coastal mangrove forest within the Amazon Delta, protecting and capturing the economic and ecosystem services of this delicate ecosystem.

EDIT: Switch image for the actual Mangrove crab illustration and make it look like the others.

Illustration by Brett Affrunti

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THE MANGUE STRATEGY

The sustainable harvest of mangrove crabs is of both environmental and social importance and is the

basis of the Mangue Strategy (“Mangue” or “the Strategy”). Mangrove crabs are comparable to other

mass-market crab species in terms of taste and texture, and can be processed into a variety of marketable

seafood products. The crabs are found exclusively in dense forest ecosystems known as mangrove

forests or “mangroves”, which grow in tropical and subtropical coastal zones around the world. Brazilian

mangroves, many of which are located in expansive protected areas along the coast, are among the

most biodiverse ecosystems on Earth and provide critical spawning grounds and nurseries for many

commercial and non-commercial marine species. Mangrove crabs are considered a keystone species in

this ecosystem due to their role in shaping the physical, chemical, and biological conditions.

The Mangue Strategy outlines an impact investing strategy across a large swath of the coastline in the

state of Pará, spanning some 300,000 hectares and encompassing nearly 30% of Brazil’s total mangrove

forest habitat (see Figure 1). The state’s mangrove forests produce roughly 50% of the total mangrove

crab landed nationally. Straddling the heart of the Amazon Basin, Pará consists of some of the most

species-rich habitats on Earth, but is also facing intense pressure from destructive land-use activities

including mining, aquaculture, and deforestation, making it the subject of much national and international

environmental concern.

FIGURE 1: Map of Pará State, Brazil

Mangue outlines an impact

investing strategy across a

large swath of the coastline

in the state of Pará,

spanning some 300,000

hectares and encompassing

nearly 30% of Brazil’s total

mangrove forest habitat.

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The mangrove crab fishery spans a series of coastal

extractive reserves, referred to as “RESEXs,” which

exclude non-community members from fishing

the crab resource while allowing virtually unlimited

extraction by community members living within

the reserve area. This system regulates the fishery

to a degree, but leaves the prospect of overfishing

largely unresolved.

While data collection efforts have been lacking,

research suggests that an estimated 2,000 full-time

crabbers landed approximately 80% of the average

5,000 metric tons (mt) of total crab harvests in

the years leading up to 2004. The last government

assessment of landings was conducted in 2007,

and showed only 3,000 mt of crab harvested from

the fishery.1 The reason for this decline in landings

is unclear, but could be related to improved

economic growth in the region from 2005 to

2007, drawing fishers into alternative economic

activities. Crabbing has traditionally been seen as a

profession of last resort due to the difficult working

conditions and low pay, so activity levels in this

fishery tend to be inversely related to the strength

of the Brazilian labor market. As of 2014, landings

in Pará were estimated to have increased once

again to at least 5,000 mt, representing an

aggregate value of approximately $5.3 million.

This rising rate of extraction, coupled with a weaken-

ing Brazilian economy, poor access limitations that

technically allow any of the 150,000 community

members across the 10 RESEXs to harvest crab, and

growing demand for crab products domestically and

internationally, threatens to dramatically increase

fishing effort. Such overfishing, in turn, could drive

significant crab-stock declines, with ramifications

for the broader ecosystem, given the keystone role

of the species. Neighboring states and select micro-

regions within the reserve have already experienced

this phenomenon.2 Moreover, with the recent

economic downturn in Brazil, there is increasing

pressure being put on officials in Pará to allow

the conversion of mangrove forests to shrimp

aquaculture in an attempt to generate alternative

livelihood opportunities, further threatening the

mangrove crab fishery.

As such, the Mangue Strategy would attempt to

implement robust management systems and

provide an economic case for conservation

before overfishing, habitat destruction, and

stock depletion occur. To do so, the Strategy

proposes the investment of $15 million in equity,

program-related investments, and grant funding

to launch CEB,3 a mangrove crab processing and

distribution busi ness, combined with robust fishery

1 ARR Araujo, “Fishery Statistics and Commercialization of the Mangrove Crab Ucides Cordatus (L.) in Braganca, Pará, Brazil,” Center for Tropical Marine Ecology, 2006. Current (2014) estimates are based on consultant estimates derived from biological parameters and primary research undertaken by local universities.

2 Based on conversations with local academics and conservation organizations operating in the region.

3 CEB stands for “Crab Export Business,” the name chosen for the hypothetical Brazil-based company to be established in the state of Pará.

Photo credit Tarciso Leão

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management improvement measures implemented

across 10 RESEXs in the state of Pará. Sourcing

solely from community fishers adhering to strict

sustainable management guidelines, CEB aims

to be the first Brazilian mangrove crab processor

licensed to sell crabmeat products across state

lines and to export to international markets. The

Mangue Strategy’s innovative approach would

incorporate the use of (a) investment capital to

catalyze government policy reforms, (b) robust

data collection technologies and systems, and (c)

financial incentives that reward sustainable fishing

practices over time. Bundling fishery management

improvements with a commercial enterprise would

enable the Mangue Strategy to capture higher

value for the crab products, create a more efficient

and responsible commercialization channel, and

reward fishers for maintaining sustainable fishing

practices on an ongoing basis.

The Mangue Strategy aims to preserve current

stock levels, with a modest upside potential

of 10% increased in biomass due to reduced

fishing pressure.4 The strategy aims to increase

aggregate fisher incomes by 33%, offer greater

resilience for fishing communities through profit-

sharing mechanisms, and empower fishers

through community organization and enhanced

market power. The Mangue Strategy also has

the potential to dramatically reduce spoilage in

the supply chain while increasing the number of

meals to market by up to 59% by the project’s

final year. In addition, the Mangue Strategy hopes

to reduce the conversion of critical mangrove

forest habitats to aquaculture or other uses by

giving them additional economic value. Finally, the

base case projections suggest that the Mangue

Strategy has the potential to generate compelling

financial returns, targeting a 12.0% levered equity

return, with diversified cash flows stemming from

both domestic and international markets, over a

nine-year horizon.

4 While The Mangue Strategy believes that the potential exists for stock recovery, the business model and project economics both assume that the fishery is maintained at current biomass levels.

IMPACT AND FINANCIAL RETURNS

• Safeguards mangrove crab stock levels across 10 RESEX sites with the potential to increase biomass by 10%, depending on current fishery conditions

• Increases aggregate fisher incomes by 33%, and improves community resilience through profit-sharing programs

• Empowers fishers and fishing communities by extending formal recognition to newly organized crabbing associations that provide political, legal, and professional representation, improving access to banking, credit, and government pension and health benefits

• Increases meals-to-market by 59% through spoilage reductions, delivering an additional 2.4 million meals to consumers annually

• Promotes the protection of more than 300,000 hectares of mangrove forest from encroaching threats of development, mining, and shrimp farming by providing a sustainable and profitable means of sustainable production

• Targets a 12.0% levered equity return over a nine-year period

The Mangue Strategy aims to preserve current stock levels, with a modest

upside potential of 10% increased in biomass and biodiversity gains due to

reduced fishing pressure.

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VALUE DRIVERS DESCRIPTION

Catalyzes government policy reforms

The Mangue Strategy and its operating partners would negotiate with fisheries authorities to establish specific management policies, including science-based catch limits, increased enforcement and prosecution of illegal activity, and the imposition of rules to restrict the sale of illegally harvested crab.

Uses innovations to increase fisher compliance

The use of catch accounting and other data systems, in combination with financial market incentives to reward fishers for sustainable practices, can increase fisher compliance with fishery management improvements.

Establishes best-in-class partnerships

The Strategy would require close collaboration with complementary operating partners, particularly conservation NGOs and academic institutions, in the design and implementation of the fishery management improvements. Moreover, the Strategy will seek to create a collaborative stakeholder engagement process, aiming to cultivate buy-in from fishers and their communities to promote sustainable fishing practices.

Engages experienced

commercial management

The Strategy would be overseen by an experienced, mission-aligned commercial management team to launch CEB and oversee its engagement with various operating partners. The proposed team has a three-year track record of success in seafood sourcing, processing, and distribution from emerging markets, and over 15 years working as retail buyers and advisors in the sustainable seafood arena.

Capitalizes on growth and margin expansion opportunities

The Mangue Strategy captures greater value from the current catch volumes by reducing spoilage from 50% to 5%, increasing the volume of marketable final product by up to 59%, and achieving 20% to 50% higher prices than current market channels through sales to new high-value markets.

Leverages a strong commercial market position

CEB can market its product with a set of unique social and environmental selling points to the proposed management team’s existing network of global clients. CEB’s product would be the first sustainable, artisanal seafood product from Brazil meeting international food safety standards.

Supported by strong underlying seafood market fundamentals

Global demand for traceable, responsibly sourced, quality crab meat is growing due to extensive fraud and illegal sourcing of product in recent years. Same-store crab-product sales are increasing in the U.S. at a compound annual rate of 8.5% since 2012.

The impact and financial returns listed above are underpinned by the following set of key value drivers:

KEY VALUE DRIVERS

We believe this set of value drivers will increase the probability

of the Mangue Strategy’s success.

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PROFILE OF THE MANGUE STRATEGY FISHERIES

Brazil contains the second largest area of mangrove habitat in the world, with more than one million

hectares found along its more than 7,000 km of coastline. No extraction or human interference is

allowed inside the protected areas designated by IBAMA (the Brazilian environmental agency), except

for in specially designated zones that are open to artisanal extraction using traditional, low-impact methods.

These zones are defined as National Reserves for the Extraction of Natural Resources, or RESEXs by their

Portuguese acronym. These RESEX zones are intended to serve as “territorial spaces destined for the

self-sustained exploration and conservation of renewable natural resources by user populations”.5 RESEXs

are established only upon request by local populations who participate in the design and implementation

of a co-management plan (between the community and the government) in exchange for exclusive access

rights to particular resources.6 Inside these zones, industrial operators are not permitted, nor are fishers

from outside of the designated communities.

The Mangue Strategy selected the state of Pará primarily because its large number of small-scale fishers and

high volume of crab production offer compelling commercial and impact potential. Pará’s mangrove forests,

located at the mouth of the Amazon Basin, constitute the second longest contiguous stretch of mangrove

habitat in the world, covering 3,000 km of coastline and approximately 30% of Brazil’s total mangrove habitat.

This area is of critical ecological importance, and NGOs and academia are active in the region, offering

strong partnership opportunities for the Mangue Strategy’s design and implementation.

In Pará State, the Mangue Strategy has identified 10 designated RESEX zones in which local community

members are permitted to harvest specified marine resources, and in which the mangrove crab accounts

for almost 50% of all extracted resource products by value. In these zones, only male crabs are caught

due to the larger claws and higher meat content. The Mangue Strategy anticipates incorporating all

10 RESEXs into its sourcing program, which encompass a total area of 302,809 hectares (approximately

1,200 square miles), as shown in Figure 2.

5 & 6 U. Saint-Paul. “Interrelations among Mangrove, the Local Economy, and Social Sustainability: a Review from a Case Study in Northern Brazil”. Environment and Livelihoods in Tropical Coastal Zones. CABI. 2006.

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FIGURE 3: Regional Extraction Clusters, Sourcing Hubs, and Logistics Strategy for the Mangue Strategy in Pará, Brazil

FIGURE 2: The Mangue Strategy RESEX Areas

RESEX AREA SURFACE AREA (HECTARES) MAIN MUNICIPALITY

Gurupi Piriá 74,082 Viseu

Marinha de Caeté Taperaçu 42,489 Bragança

Mãe Grande de Curuça 36,678 Curuçá

Maracanã 30,179 Maracanã

Soure 29,578 Soure

Marinha de Tracuateua 27,864 Quatipurú

Marinha Mestre Lucindo 26,465 Marudá

Marinha Mocapajuba 21,028 São Caetano de Odivelas

Marinha Cuinarana 11,036 Cuinarana

São João da Ponta 3,409 São João da Ponta

TOTAL 302,809

The 10 RESEX zones can be broadly grouped into five extraction “clusters,” each with its own buying station

as a regional hub, as illustrated in Figure 3.

Soure

Belem

Curuçá

Bragança

Viseu

North America

Domestic Market

E.U.

Maracanã

Buying Station

RESEX Cluster

RESEX Site

Sales Distribution

LEGEND

Raw Materials Transit

Processing Plant

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Mangue’s approach is aimed at catalyzing government policy reforms

to strengthen access limitations and increase enforcement, to eliminate

fishing during the ban period, to introduce a full-catch reporting and

documentation scheme, and to implement a traceability system to ensure

that crabs are extracted in a sustainable way.

The RESEX areas effectively serve as TURFs, or

Territorial Use Rights for Fisheries areas, which

prevent outsiders to the fishing communities

from entering the fishing grounds and harvesting

the crab. This basic access limitation offers a

foundation for development of further fishery

management improvements, and makes the

RESEXs attractive candidates for the Strategy.

The mangrove crab fisheries in Brazil have

historically been regulated through both federal

and state laws outlining permissible catch zones,

extraction methods, seasonal closures, and

minimum size limits. Unfortunately, these laws are

seldom enforced, given the fragmented nature

of the mangrove crab fisheries in Pará and the

lack of monitoring and enforcement capacity of

local fisheries authorities. In the absence of public

resources for implementation and enforcement,

the Mangue Strategy hopes to improve the

implementation of fishery management measures

by introducing community-based accountability

structures and gradually aligning fisher economic

incentives with mangrove crab stock health.

This co-management approach is a foundational

tenet of the RESEX model, but to date has

been poorly implemented in the mangrove crab

fisheries due to a lack of organization among

crabbers and the large extent of the RESEX areas.7

Bycatch and illegal landings of undersized or

female crabs are not major problems for

this fishery. However, the seasonal fishing closures,

spanning six weeks in total during the months

of January through March, are not enforced,

as evidenced by the availability of fresh crabs

and crabmeat in the market during the ban period.

Although the resource is not currently believed

to be overexploited, growing harvest pressures

due to the economic downturn in Brazil and

rising demand for crabmeat domestically and

internationally are cause for concern. Given these

factors, The Mangue Strategy would seek to

catalyze and secure certain regulatory reforms,

particularly to: (i) establish a system of crabber

licensing formalizing the profession, (ii) create

a cap on total allowable harvest, and (iii) increase

enforcement resources to reduce illegal harvest

and commercialization. Achieving these goals

would go a long way toward protecting and even

increasing current mangrove crab biomass levels.

CURRENT REGULATORY FRAMEWORK

7 U. Saint-Paul. “Interrelations among Mangrove, the Local Economy, and Social Sustainability: a Review from a Case Study in Northern Brazil”. Environment and Livelihoods in Tropical Coastal Zones. CABI. 2006.

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The Brazilian environmental agency, IBAMA, recorded

annual landings by state and species until 2007 but has

since suspended any mangrove crab data collection

in the Pará region. Based on the limited historical

information, annual landings in Pará oscillated from

between 4,600 mt and 5,800 mt per year in the early

2000s, but decreased to less than 3,000 mt in 2006

and 2007.8 (See Figure 4.) Given the lack of scientific

data for the fishery, experts cannot currently determine

whether the decrease was the start of a persistent

reduction in crab catches or the result of reduced effort

in the fishery during that period. Current unofficial

estimates suggest that landings have since rebounded

to nearly 5,000 mt, likely as a result of the recent

economic downturn in Brazil and a resulting increase

in fishing effort as crabbers return to the fishery.

Upwards of 150 communities across the 10 asso-

ciated municipal districts of Pará are within or

bordering a RESEX, with 150,000 community

members granted access to the extractive reserves.

Of these, an estimated 120,000 people depend in

some way upon the RESEX resources to earn a

living, with approximately 75,000 relying on the

harvest, processing, transport, or sale of mangrove

crab for either all or a significant portion of their

livelihood, which often combines subsistence

with commercial activities.9

While there are full-time crabbers who take pride

in what they do, many individuals use crabbing as a

safety net for short-term poverty alleviation when

other employment options disappear or become

less economically viable. The fishery operates

as such because of the lack of barriers to entry,

the reduced need for specialized skills, and the

absence of requirements for any up-front capital

investment. The consequent influx of part-time and

opportunistic crabbers can lead to turf conflicts,

and during periods of increased fishing effort,

oversupply can drive down prices. This is especially

challenging for those full-time crabbers who rely

on the resource for 100% of their income. A day

of crabbing consists of an average of eight hours

spent manually extracting the live crabs from their

burrows. While fast-working crabbers under the

best conditions can earn up to $20 per day net

8 Instituto Brasiliero de Meio Ambiente (IBAMA), “Estatistica da Pesca: Brazil,” Ministerio do Meio Ambiente, Brazil, 2007.

9 Ulrich St. Paul and, Horacio Schneider, “Mangrove Dynamics and Management in Northern Brazil”, Springer Science and Business Media, 2010.

SOCIOECONOMIC CONTEXT

FIGURE 4: Official Brazilian Government Landings Statistics for Mangrove Crab, 2001–2007

10,000

8000

6000

4000

2000

2001 2002 2003 2004 2005 2006 2007

Rio Grande do Sul

Santa Catarina

Paraná

São Paulo

Rio de Janeiro

Espírito Santo

Bahía

Sergipe

Alagoas

Pernambuco

Paraíba

Rio Grande do Norte

Ceará

Piauí

Maranhão

Amapá

Pará

Lan

din

gs

of

wh

ole

man

gro

ve c

rab

(m

t)

CONDITION OF MANGROVE CRABS IN BRAZIL

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of costs, their productivity levels are restricted by

variations in tides, weather, and seasons, as well

as the number of days per week that they are able

to go out. As a result, average daily earnings for

full-time crabbers range from $3 to $4 per day

over the course of a year.10

The state of Pará is located in the second poorest

region of Brazil, behind the northeastern states, with

36% of the population considered “poor” (living

on less than $130 per month) and 13% categorized

as “extremely poor” (living on less than $65 per

month). Among the rural population utilizing the

RESEX resources, these numbers are even more

pronounced, with between 50% and 80% of this

population falling below the poverty line, depending

on the region.11 Crab fishers are among the most

disenfranchised members of these communities,

as they are unlicensed individuals operating almost

entirely within the informal economy, and are

afforded no professional or political representation

in the form of associations or cooperatives

common among other types of fishers. Because

their profession is not legally recognized as such,

they also lack access to government social security

benefits, health coverage, minimum wages, and

access to credit and the banking system.

10 Capistrano, et al.,. “Crab gatherers perceive concrete changes in life history traits of Ucides cordatus, but overestimate their past and current catches”, Ethnobiology and Conservation 1 (7), 2012.

11 Instituto Brasileiro de Geografia e Estatistica (IBGE), “2010 Population Census,” 2011.

12 Daniel Viana, “Brazil Coastal Fisheries Fellowship Report,” Rare International Service Program, Final Report, 2013.

13 Fernandes, et al., “Productive Chain of the Mangrove Crab in the Town of Braganca, in the Northern Brazilian State of Pará,” Journal of Coastal Research, April 2014.

Collectors generally harvest mangrove crabs by

either pulling them out of their burrows by hand or with

a hooked stick, and tie the animals together in bunches

of 10-20 live individuals. From this point, the crabs enter

a fragmented and inefficient supply chain in which

the product changes hands multiple times between

intermediaries before it is ever consumed.

Crab fishers typically sell their catch immediately

following harvest to reduce the risk of spoilage, and

thus are at the mercy of price fluctuations, weather

events, and any other external forces that may affect

their yields. In some cases, crabbers sell live crabs

to primary traders, who then mark up and sell fresh

crab to restaurants or other consumers. Throughout

this process, crabs are traditionally transported while

tied together without padding or adequate humidity.

This has been shown to lead to mortality losses

of 50% on average, as crabs are dehydrated and

become aggressive when tied together.12 Crabbers

also sell crabs in local open-air markets or directly to

“pickers”, artisanal processors who manually extract

meat from between 150 and 300 crabs per day,

often in their homes.13 Processing the crab by hand

THE CURRENT SUPPLY CHAIN

Photo credit José PintoPhoto credit Tarciso Leão

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is a painstaking, time-intensive, and highly inefficient

process. Once pickers have removed the meat,

secondary traders buy it and sell it to local restaurants

or, in some cases, to larger regional markets.

At each turn in the supply chain the product price

is marked up as each intermediary must carve out

a profit, regardless of added value. 

All of this markup occurs downstream from

artisanal crabbers, who see none of the estimated

32%–150% markups that have occurred by the end

of the live crab supply chain.14 Figure 5 shows total

supply chain markups for live crab in two major

mangrove crab harvesting hubs, tracked throughout

the year.

14 Fernandes, et al.,. “Productive Chain of the Mangrove Crab in the Town of Braganca, in the Northern Brazilian State of Pará,” Journal of Coastal Research, April 2014.

FIGURE 5: Estimated Markup of Mangrove Crab Prices

160

140

80

100

120

60

40

20

JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC

Mark

up

(%

)

Market Braganca

Market Belém

Photo credit Cristiano Burmester

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A supply chain analysis of the processed

crabmeat commercialization chain in the crab

markets of Braganca and Belem shows an even

higher average markup in the processed meat

market. The distribution of markup throughout

the year at each stage in the supply chain is

shown in Figure 6.

The sale of live crab takes place as quickly as

possible due to high mortality rates and little to no

access to cold storage. Crabbers must sell their catch

directly to intermediaries and traders at whatever

price they can get, leaving them highly vulnerable

both to changes in yield due to weather events and

profits due to price fluctuations. This vulnerability

also largely excludes crabbers from the higher profit

margins enjoyed by those further down the supply

chain. Markups of live crab have been documented

to be as high as 150%.15 Because of the fragmented

supply chain and lack of processing and transport

infrastructure, crabbers have no access to higher-

value markets and currently see no material benefit

to engaging in sustainable fishing practices.

FIGURE 6: Total and Individual Markup (%) in the Pulp Crabmeat Commercialization Chain on the Braganca and Belém Markets, 2003

TOTAL MARKUP (%)

MIDDLEMAN MARKUP (%)

WHOLESALER MARKUP (%)

RETAILER MARKUP (%)

January 149 27 29 52

February 160 23 31 60

March 143 21 25 60

April 124 7 33 58

May 127 6 58 35

June 211 37 64 38

July 110 6 38 43

August 154 25 33 52

September 156 15 45 52

October 204 15 59 66

November 212 16 50 79

December 216 12 57 79

15 ARR Araujo, “Fishery Statistics and Commercialization of the Mangrove Crab Ucides Cordatus (L.) in Braganca, Pará, Brazil,” Center for Tropical Marine Ecology, 2006.

Because of the fragmented supply chain and lack of processing and transport

infrastructure, crabbers have no access to higher-value markets and currently

see no material benefit to engaging in sustainable fishing practices.

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THE MANGUE IMPACT STRATEGY

IMPACT INVESTMENT THESIS

The Mangue Strategy’s impact thesis is premised on the opportunity to bundle investments into robust

fishery management improvements with investments in crab processing and distribution to create the

economic incentives necessary to finance ongoing fishery management improvements and reward fishers

for complying with them. As such, the Mangue Strategy proposes three key steps:

Step 1: Engage with fisheries authorities and communities to secure specific fishery management policy reforms.

Step 2: Invest an initial $3.5 million into the design and implementation of fishery management

improvements and the capitalization of Fishing Community Trusts in each of the ten RESEX zones.

Step 3: Invest $11.5 million into a new Crab Export Business (CEB), funding the construction of 10 buying

stations for sourcing raw materials, a state-of-the-art processing facility, and development of new marketing

and sales channels for Brazilian mangrove crab. (See “The Mangue Strategy Commercial Investment Thesis”

section below for a full description of CEB’s strategy and value proposition.)

16 This covers fishery management improvements costs for the first three years of the Strategy prior to CEB generating revenue.

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STEP 1: SECURE GOVERNMENT COMMITMENTS

HARVEST HANDLINGCOLD CHAIN/ TRANSPORT PROCESSING DISTRIBUTION

STEP 1: Secure Government Commitments

STEP 2: Invest $3.5 million to fund fishery management improvements and capitalize Fishing Community Trusts (FCT)

STEP 3: Invest $11.5 million to launch and operate CEB

SMALL-SCALE FISHERIES SEAFOOD SUPPLY CHAIN

FIGURE 8: Summary of Mangue Investments

The Mangue Strategy would first seek to establish

specific management commitments from

Brazilian fisheries authorities at either the state

or federal level. In order to protect mangrove

crab biomass and mangrove forests, there must

be effective access and total allowable catch

limitations in place in the fishery. While the

RESEX serves as an important cornerstone to

access limitations by prohibiting non-community

members from fishing the resource, the unlimited

access afforded to community members without

a total allowable catch limit leaves the fishery

and ecosystem vulnerable to increasing numbers

of community members entering the fishery.

The Mangue Strategy would thus work with

fishery authorities and the crabber association

to codify a series of regulations including to (i)

establish a system of fisher licensing, (ii) create a

cap on total allowable harvest, and (iii) increase

enforcement resources to reduce illegal harvest

and commercialization. All of these measures

would serve to facilitate and empower the creation

of crabbing associations of legal harvesters.

The passage of these measures is believed to be

feasible given their direct alignment with and

reinforcement of the ultimate objectives of the

RESEX management approach, wherein communities

“co-manage” natural resources with limited

government support, mostly in the form of codified

harvest rules and enforcement. Moreover, the recent

disbanding of the Ministry of Fisheries in Brazil

is widely seen as positive step, and should help

catalyze renewed government effort to improve

fishery management, and particularly “win-win”

opportunities such as this one.

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The Mangue Strategy’s plan contemplates imple mentation of fishery management improvements in 10

RESEX zones in the state of Pará.

THE FISHERIES MANAGEMENT PLAN

The proposed fishery management improvements

incorporate design criteria that are aligned with

international sustainability standards and best

practices. In addition to the anticipated government

commitments highlighted in blue, the table below

outlines the fishery improvement measures

associated with the portfolio sites and funded by

the Mangue Strategy. The Mangue Strategy would

seek to have most of these measures in place by

Year 4 when commercial operations would begin.

STEP 2: FISHERIES MANAGEMENT IMPROVEMENTS

CORE FISHERIES MANAGEMENT COMPONENTS

ACTIVITIES PROPOSED MANAGEMENT IMPROVEMENTS

Stakeholder Engagement

Government Engagement

• Engage with fisheries authorities to secure policy reform commitments and resources

Community Engagement

• Hold convenings with fishers to educate them on sustainable harvest methods, closed seasons, catch documentation, size limits, and other critical sustainability measures

Community Support

• Assist fishers in organizing into producer associations to enhance their political and market power, while also making it easier for CEB to coordinate fishery management and sourcing activities

Policy Rules and Tools

Exclusive Access Rights

• Establish crabber registration and licensing system with a cap placed on the number of permitted harvesters17

• Establish science-based catch limits in accordance with estimates of maximum sustainable yield that can be refined as additional data is collected over time

• Improve monitoring and enforcement of illegal harvest and commercialization

Biological Monitoring and Assessment

• Conduct stock assessment based on four-year time series of capture data and catch per unit effort (CPUE)

Fisheries Management

• Work with local operating partner(s) to design and oversee implementation of RESEX-specific fishery management plans outlining proper harvesting, landing, and catch-documentation practices, as well as other key environmental considerations

Compliance Catch Accounting • Create database for systematically storing all landings data recorded by CEB at buying stations to inform fishery management efforts, and particularly harvest limits

Product Traceability

• Implement RFID tagging program to provide full traceability from the buying stations to market

Local Enforcement Systems

• Sign contracts with the leadership of each of the crabbing associations stipulating that in exchange for access to the CEB commercialization channel and Sustainable Fishing Rewards Program (described below), all the association members must comply with the guidelines of the fishery management plan

17 Given that the fishery is not currently overexploited, the total allowable catch would not necessarily decrease; rather, this regulation would seek to prevent harvest in excess of MSY by future entrants into the fishery and to allow for adaptive management based on stock conditions.

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18 The concept and structure of the FCT is borrowed, in part, from the structures used by Fair Trade in distributing premiums earned on Fair Trade

products to producing communities. Visit See “annualreport.fairtrade.org/en” for a description of Fair Trade’s successful use of this mechanism.

19 The allocation and use of FCT funds will be subject to all rules and restrictions pertaining to the use and distribution of grant and government funding both within the local Brazilian context as well as the domiciles from which the funds are sourced.

20 If exit proceeds were sufficiently large or investors were willing to forgo a greater equity share, these funds could be used to endow a trust fund to pay for community or fishery improvements in perpetuity. This Fishery Management Fund mechanism is explored in the Merluza Strategy Blueprint.

The Mangue Strategy proposes to utilize third-

party auditing of its fishery management

improvement implementation to create additional

discipline and accountability in its sourcing policies

and systems. The auditors would be asked to

review reports provided by CEB and the local

implementation partner, to conduct formal reviews

of fishing practices and management systems,

and to perform surprise annual audits.

SUSTAINABLE FISHING REWARDS PROGRAM

Fishers willing to commit to Mangue’s fishery

management improvements and serve as suppliers

to CEB’s sourcing network (see “Commercial

Investment Thesis” section) would be eligible to

participate in the Mangue Strategy’s Sustainable

Fishing Rewards Program (SFRP). The Mangue

Strategy proposes to employ the SFRP as a

financial incentive to catalyze and maintain

the implementation of sustainable artisanal

fishing practices to support habitat protection,

stock preservation, and regulatory compliance

across the 10 RESEX zones.

The SFRP would offer economic rewards to fishers and

fishing communities in two ways: (a) through the

payment of higher prices per unit of catch (referred

to as “price premiums”), and (b) via a profit-sharing

mechanism whereby fishing communities are allocated

an economic interest in CEB’s business, gaining access

to a share of the proceeds from the Company’s sale at

exit (see Figure 7).

Raw Material Price Premiums

CEB expects to be able to pay fishers prices that

are over 30% higher than current local market prices

for live, whole crab raw material, as a result of a

combination of improved supply chain efficiencies

and resulting decreases in spoilage rates of up to

90%, and of higher-margin sales to export markets

for finished goods.

The Fishing Community Trust

In addition, The Mangue Strategy will invest

$2.5 million to capitalize 10 newly created financial

entities called “Fishing Community Trusts” (or

FCTs), with one FCT for each RESEX.18 The FCT

would serve as an adjunct entity to newly formed

crab fishing associations in each RESEX, which

CEB and the management implementation

partner will help establish, creating an additional

incentive to reward sustainable fishing practices

beyond the up-front premium. The Mangue

Strategy proposes that the FCT be structured

as a community reserve fund or insurance pool,

where funds could be drawn down to help

participant communities cover revenue shortfalls

as a result of inclement weather, changes in

tides, or other environmental phenomena that

curtail harvest.19

Each FCT would be capitalized at the project outset

with $250,000 in grant funding from a combination

of philanthropic sources and Brazilian state or

federal governments or development agencies, with

25% of funds becoming available each year. The

goal of the FCT in years 1 through 4 would be to

provide incentives to the communities to participate

in Mangue’s fishery improvement efforts prior

to CEB being able to pay out premiums for raw

materials. Given that the FCT would be exhausted

by Year 5, The Mangue Strategy would allocate 20%

of the proceeds from the sale of CEB to recapitalize

the portfolio FCTs in the ninth year of the

investment.20 In the intervening years, the premiums

would be used as the primary financial incentive

to reward compliance. In this way, the FCT both

incentivizes participation from the Strategy’s outset

with committed funds up front, while also providing

a share of longer-term profits generated through

the success of the crabbing association-CEB

collaboration. This approach avoids the challenge

of sharing profits with thousands of crabbers

independently, while still providing tangible benefits

for participation to them and their communities.

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21 The FCT would be capitalized initially with grant funds from philanthropic and regional government sources, potentially constraining how the funds are used.

The FCT would have the following governance and

membership requirements:

a. The Fishing Community Trust (FCT) should

be established as a public benefit trust, wholly

owned and governed by each RESEX crab-fisher

association, subject to minimum conditions

established through an FCT charter document.

b. FCT leadership must be elected annually

by its members by simple majority in a

democratic vote.

c. FCT’s governance would include rotating board

members, one representing each of the crabber

associations in the ten RESEX regions and

selected by the crabbers in that region. Each

member would have one vote. The Mangue

Strategy would have three voting members

selected from among its operating partners.

d. Fund distribution decisions would be on the basis

of a simple majority vote, while proposed modifi-

cations to the FCT charter would require a two-

thirds supermajority from the board with at least

two votes from Mangue Strategy members.

e. The board would be responsible for determining

to what use to put the funds each year, subject

to the constraint that they be directed toward

communities in full compliance with the Mangue

Strategy fishery improvement plans and fall within

the usage restrictions of the grant provider.21

f. Member obligations must include agreement

to and compliance with the adopted fishery

management improvement plan, to be updated

and renewed annually.

g. The FCT will have a vesting period of four years,

whereby the association receives an incremental

25% share of the total funds each year, but

only after demonstrated compliance with the

fishery management improvements. At the end

of the project, the FCT would be recapitalized

with the proceeds from the 20% equity share

in CEB, dependent upon continued compliance

throughout the life of the project.

CEB would only source raw material from current

members of the FCTs in each fishing association on

the basis of individual and community compliance

with the fishery management improvements as

determined by local community monitoring and

annual third-party verification. Prices for specific

volumes of landings will be paid directly to fishers

so long as their membership in the association

and compliance with the terms of the FCT remain

intact. Proceeds generated by the FCT’s 20%

economic interest in CEB’s business operations

generated at exit would be split among the FCTs

in order to recapitalize them.

The Mangue Strategy estimates the current value

of the estimated 5,000 mt landed annually across

the 10 RESEXs to total approximately $5.3 million.

The Mangue Strategy estimates that sufficient

additional economic value can be generated each

year across its operating footprint to pay out an

average of $1 million in annual price premiums

during the six years following the inception of raw

material sourcing in Year 4, reaching $1.7 million

annually by 2024. The value of the FCT equity stake

is projected to reach $5.7 million in future value

terms under base case assumptions, with further

upside growth potential if the investment period

were to be extended.

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In addition, the Mangue Strategy proposes securing

legal contracts with the leadership of each of

the associations stipulating that, in exchange for

continued legal status and access to the benefits

provided by the crab fisher associations and

affiliated FCTs (such as premium prices, CEB

equity, and political recognition as legal harvesters),

the members must comply with the fishery

management improvements.

Any association or individual found to be in breach

of the agreement could lose access to these

valuable benefits as well as to the SFRP. This use of

enforceable covenants and incentives would create

a self-policing structure in which the association’s

leadership would be able to use a range of punitive

measures to protect the broader interests of the

association against the harmful actions of individual

fishers, including revocation of both fishing rights

(subject to legal approval) and membership in the

federation. This structure highlights the important

interplay between market incentives and fisher

compliance in a context in which sanctions on

individual fishers by the Mangue Strategy by itself

may be legally or politically infeasible.

Management and Implementation

The Mangue Strategy would seek to establish partner-

ships with locally active NGOs, preferably with existing

knowledge of mangrove crab fisheries in Brazil, to

serve as implementation partners. The partnership

would incorporate a services agreement offering a fee

payment for delivery of specific fishery management

activities, including organization of fishers and

establishment of the proposed Fisheries Community

Trust and Sustainable Fisheries Rewards Program,

implemen tation of catch accounting systems, support

for the proposed fisher licensing program, and

coordination of the third-party audits required as part

of the program.

FIGURE 7: Sustainable Fishing Rewards Program (FCT and Premiums)22

SUSTAINABLE FISHING REWARDS PROGRAM

$1,000,000

$3,000,000

$2,000,000

$4,000,000

$5,000,000

$6,000,000

$7,000,000

$8,000,000 Premiums Paid to Fishers

Contributions to FCT

The Mangue Strategy believes that it can generate sufficient additional

economic value each year across its operating footprint to pay out an average

of $1 million in annual price premiums during the six years following the start

of sourcing operations in 2019, reaching $1.7 million annually by 2024.

22 $2.5 million up-front contribution vests over four years, and is recapitalized upon exit through a 20% equity share.

FCT Payout

YE

AR

3

YE

AR

2

YE

AR

1

YE

AR

0

YE

AR

4

YE

AR

5

YE

AR

6

YE

AR

7

YE

AR

8

YE

AR

9

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23 “Operating Expenses” excluding expenditures on fixed assets (CAPEX).

24 “Fishery Management Improvements” including CAPEX.

FISHERIES MANAGEMENT IMPROVEMENTS BUDGET

The Mangue Strategy anticipates implementation

of the fishery management improvements across

the 10 RESEXs and 98 communities over a nine-year

time frame, as shown in Figure 8.

TARGETED SOCIAL AND ENVIRONMENTAL IMPACTS

The Mangue Strategy targets several specific

medium- and long-term social and environmental

outcomes, including (a) maintenance of current

stock levels or modest stock increases, (b) increased

income levels for fishers, (c) increased economic

resilience for fishers, and (d) protection of the

mangrove forest ecosystem from which the crabs

are extracted.

FIGURE 8: Fisheries Management Improvements Expenses23

FMI ANNUAL OPERATING EXPENSE

$100,000

$300,000

$200,000

$400,000

$500,000

$600,000

YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6 YEAR 7 YEAR 8 YEAR 9

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TARGETED IMPACT RETURNS

Protect and Restore Fish Stocks

• Preserve current estimated biomass throughout the nine-year investment horizon and beyond

• Deliver up to a 10% increase in biomass by Year 7

Support Fisher Livelihoods

• Generate 33% higher revenues relative to non-CEB market channels for participating fishers, or an estimated $1.7 million in additional annual value by 202425

• Increase community resilience through 20% profit-sharing interest in the CEB business, equivalent to $5.4 million over the nine year project and $4,320 per fisher in CEB supplier network26

• Empower fishers through registration and licensing, formal government recognition and associated social benefits, organization and formalization of the sector, and access to formal banking channels.

Feed More People • Eliminate 90% of post-harvest losses

• Target the delivery of an additional 2.4 million sustainably produced meals to local, regional, and global seafood markets

Co-Benefits • Help protect up to 300,000 hectares of mangrove forest habitats from conversion to aquaculture or other land-uses by improving the economic viability of standing mangrove forests

The table below sets forth the long-term impact return targets for the 98 communities and associated

fisheries that TMS would incorporate into its sourcing network.

25 Equivalent to $1.15 million in real (2015) terms.

26 Equivalent to $3.66 million and $2,908 per fisher in real (2015) terms. Assuming fishers-incorporated is held constant.

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THE MANGUE COMMERCIAL INVESTMENT THESIS

STEP 3: LAUNCH AND GROW CEB

Step 3 of the Mangue Strategy’s impact investment thesis proposes to fund an investment into a new

processor and exporter of mangrove crab products, CEB. This company, launched alongside Steps 1 and 2,

will create a commercial platform capable of adding value to the mangrove crab products and generating

a 12% financial return to investors. The Mangue Strategy proposes an investment of $11.5 million to establish

the supply chain infrastructure necessary to source sustainably-caught mangrove crab from the Mangue

Strategy’s portfolio communities, add value to the product, and ultimately sell it into higher-value markets.

VALUE PROPOSITION

In accordance with the other small-scale blueprints, the Mangue Strategy capitalizes on the opportunity

to create additional value from products in order to reward fishers for sustainable practices while

generating compelling financial returns for investors. Mangue’s commercial investment thesis centers

on a) the dramatic reduction of spoilage, reducing product volumes lost between first sale and retail

by up to 90% (from 50% spoilage down to 5%); and b) the development of an export and high-value

domestic-market oriented supply chain for artisanal seafood that can achieve significantly higher prices

than the current local market.

HARVEST HANDLINGCOLD CHAIN/ TRANSPORT PROCESSING DISTRIBUTION

STEP 3: Invest $11.5 milion to launch and operate CEB

SMALL-SCALE FISHERIES SEAFOOD SUPPLY CHAIN

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The Mangue Strategy estimates the current value

of the 5,000 mt of catch from the 10 regions

from which it plans to source to be approximately

$5.3 million, of which 65% would be included in

the Mangue Strategy during the first nine years.

Improvements to the quality of the current landings

volumes could generate up to 33% more value

for the products, implying an aggregate potential

gain in value of approximately $1.7 million annually

across the 10 RESEX regions by Year 9. This value

creation is independent of any value that might be

generated through stock restoration and higher

landings volumes.

COMPANY DESCRIPTION AND MISSION ALIGNMENT

The Mangue Strategy would invest in the launch

of a newly created company based in the Brazilian

state of Pará established as the first processing

and export business in the country to exclusively

deliver sustainably-sourced mangrove crab products,

including both crabmeat and live fresh crabs to

domestic and international customers. CEB would

require that its suppliers employ sustainable fishing

practices and would offer financial incentives to

engage and reward its suppliers. CEB would serve

both customers throughout Brazil, particularly in

the northeast where there is already a tradition of

mangrove crab consumption and in other large

Brazilian cities with high levels of tourism, as well

as in Europe, North America, and Asia Pacific.

LAUNCH AND GROWTH STRATEGY

CEB would be a greenfield business venture with

no operating history. The founders of CEB would

ideally have extensive experience setting up and

operating similar sustainable seafood processing

companies in other developing countries, and

would support a gradual buildup of CEB’s

operations while working to lay the groundwork

for fishery management improvements with

local implementation partners. The company

would obtain all necessary permits to build

and operate the processing facility in the first

few years and would expect to source raw

materials from the Mangue Strategy portfolio

communities and generate initial revenue in

Year 4. If successful, the business is projected to

achieve a 45% gross margin and 24% EBITDA

(earnings before interest, tax, depreciation, and

amortization) margin by Year 9 in the base case,

with total revenue and EBITDA of $15.5 million

and $3.8 million, respectively.

Sourcing and Handling

CEB would develop a sourcing portfolio

covering 65% of the current fishery in combin-

ation with efficient sourcing logistics aimed at

purchasing 3,200 mt of raw material by Year 9.

The sourcing portfolio would seek to incorporate

approximately 98 communities within the

10 RESEX zones in Pará where mangrove crab

is currently being harvested.

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Total volume of raw materials sourced by CEB is

expected to grow from 640 mt in Year 4, its first

revenue-generating year, to 3,200 mt by Year 9

(see Figure 9).

Investment proceeds would be used to provide

fishers and fishing communities with crab transport

boxes that allow crabs to be transported and

stored in a chilled and aqueous environment so

as to preserve freshness and reduce post-harvest

mortality and spoilage.

Cold Chain and Logistics

To support the sourcing network, the Mangue

Strategy would fund CEB with $500,000 to

construct a cold chain “backbone” to support

all 10 sustainable fishing regions across the

Pará RESEX zones, including the construction

of 10 new buying stations, one in each RESEX.

The buying stations would serve both as collection

and consolidation points for raw materials to

be transported to CEB’s processing facility, as

well as centers for outreach and commercial

interaction with fishery stakeholders. In the

buying stations, seafood raw materials would be

procured from FCT members, inspected against

quality parameters and sustainability requirements,

labeled with identity tags that serve as the core

of the traceability program, and prepared for

loading and transport to the processing facility.

The buying stations would be equipped with

a crab storage room with air conditioning and

regular hydration so that crabs can be kept in

good condition for a maximum of 30 hours before

loading and shipping to the processing plant.

CEB would also acquire 10 small collection trucks

(one for each buying station) that would transport

the raw materials from the buying stations to the

processing plant. These trucks would be insulated

and chilled to an inside temperature of 20 Celsius

(69 Fahrenheit) to keep the crabs in good condition.

Processing

The Mangue Strategy proposes investing

$6.7 million in the construction of a new, modern,

and mechanized product manufacturing facility

with a capacity of 4,000 mt of crab raw materials.

Currently, all mangrove crab processing in Brazil,

such as removing crabmeat from fresh crabs,

is done by hand, and no machinery exists to

Photo credit ICMBio/APA Delta do Parnaíba

FIGURE 9: Total Estimated Sourced Volume of Raw Materials (mt)

500

2,500

2,000

1,000

3,500

3,000

YEAR 4 YEAR 5 YEAR 6 YEAR 7 YEAR 8 YEAR 9

3,2112,812

2,004

2,402

1,237

640

Metr

ic t

on

s (m

t)

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process mangrove crab. However, machinery to

process other crab species, such as swimming

crab, does exist and is being used widely in other

parts of the world. Chile, Canada, and the U.S. are

the countries with the most experience in crab

processing technology, so it is CEB’s intention to

contract specialists in these countries to create

machinery specifically for use in processing the

mangrove crab.

The processing facilities would be constructed

to meet international food hygiene and safety

standards to avoid contamination and extend

product life, utilize quality packing and packaging

materials to extend product life and maintain

quality, and pay factory workers at least the

minimum official wage but with bonuses for

achieving higher processing yields.27 No mangrove

crab processors currently operating in Pará are

allowed to export processed crab products outside

the state. This is due to historical noncompliance

with national food safety laws, which has led to

food safety problems in the market in the past. The

CEB processing plant would be in compliance with

international food safety and hygiene standards

and intends to receive all the necessary permits and

approvals to export high-quality crab products to

Brazilian cities outside Pará and internationally.

The facility would also be equipped with advanced

IT and data processing systems to support

traceability throughout its various operations. The

facility, with a total capacity of 4,000 mt, would

allow CEB to process up 1,056 mt of crab products

from the raw materials sourced by 2024 and allow

for further growth in the following years. The final

products would be composed of approximately

244 mt of raw frozen whole crab, 244 mt of cooked

frozen whole crab, and 568 mt of frozen cooked

crabmeat products, as shown in Figure 10.

FIGURE 10: Crab Product Forms and Markets

PRODUCT FORM PRODUCT TYPES DETAILS/REMARKS

Whole Crab • Raw Frozen

• Cooked Frozen

• Product mainly for Asian markets

• Product mainly for Asian markets

Crabmeat • Cooked Frozen Claw Meat

• Cooked Frozen Leg Meat

• Cooked Frozen Body Meat

• Potentially also for canned products

• Potentially also for canned products

• Potentially also for canned products

27 Existing processing facilities pay their workers a monthly salary of RS 480 ($163), inclusive of all employer taxes, insurance, pension, and other social benefits.

Distribution

CEB would work to build market access and

distri bution to support total volume of finished crab

products sold of 1,056 mt by Year 9. Its marketing

strategy would focus on the development of

higher-value products such as cooked claw meat,

and the cultivation of CEB brands with buyer

recognition for sustainability, quality, and food safety.

CEB would seek to secure client accounts in Europe,

North America, and Asia Pacific.

From a marketing perspective, CEB would leverage

and tap into its proposed management team’s

existing marketing network and experience in

the international seafood markets. CEB would

invest considerable time and capital to develop its

brand identity in the international markets. CEB’s

marketing strategy would focus on linking major

buyers and seafood businesses to its artisanal

sourcing networks in Brazil. CEB would attempt to

create deep linkages between buyers and suppliers

such that the buyers become invested in CEB’s

sustainability standards across its sourcing networks.

Customers would be provided with a range of

promotional materials to position the products at

the point of final sale, increasing customer awareness

of sustainability values and objectives and creating

a stronger customer constituency over time.

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FIGURE 11: Primary Crab Export Markets

EXPORT TARGET GEOGRAPHIES

MARKET TYPE EUROPE NORTH AMERICA ASIA PACIFIC

Sustainably harvested crab

France

U.K.

Netherlands

Belgium

U.S.

Canada

Hong Kong

Singapore

Any crab Spain

Italy

China

Korea

CEB’s crab products would be marketed both

internationally and domestically in both retail and

food service channels. CEB would segment its target

international markets into two groups: one with

demand for sustainably harvested crab, and one with

demand for crab of any kind (see Figure 11).

For domestic markets, the sales and distribution

strategy would focus on retail and food service

markets that are interested in good quality, reliability,

and consistent supply. The marketing strategy would

primarily focus on the classical and traditional crab

markets in the northeast of Brazil, with the cities

of Salvador da Bahia, Natal, Recife, Fortaleza, and

Belem as the main centers and key target markets.

CEB would also work toward the development of

Fair Trade or other comparable certifications for

small-scale fishers in the CEB sourcing network.

Appropriate certification would further support,

frame, and promote the value of seafood products

from small-scale fisheries on world markets,

notably in North America and Europe.

Regional Extraction Clusters, Sourcing Hubs, and Route-to-Market Strategy for the Mangue Strategy in Pará

Soure

Belem

Curuçá

Bragança

Viseu

North America

Domestic Market

E.U.

Maracanã

Buying Station

RESEX Cluster

RESEX Site

Sales Distribution

LEGEND

Raw Materials Transit

Processing Plant

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MANAGEMENT TEAM AND TRACK RECORD

CEB would be founded by seasoned seafood

company executives bringing invaluable operational

experience in the sustainable seafood sector to

the Mangue Strategy. The ideal founders would

have extensive experience in the marine and

seafood sectors, with a wide range of technical

and commercial skillsets and relationships.

CEB would be headquartered in the Brazilian

state of Pará. It would be led by a local manager

who would be responsible for running the

contemplated processing facility to be based in

that state. By 2024, CEB would expect to employ

nearly 160 people, predominantly local community

members, for its buying and supply chain logistics

and crab processing facility.

The Mangue Strategy expects CEB to benefit from

favorable trends in Brazil’s current seafood market.

While the value of the Brazilian Real has fallen

considerably at the time of this writing, Brazil still

boasts a large middle class that is already driving

growth in the domestic seafood market. Between

2003 and 2009, Brazil’s middle class grew by an

estimated 35 million people.28 As is often the case, this

demographic shift entails a change in diet as middle

class consumers move away from grains and toward

more meat and protein. Furthermore, the Brazilian

government has declared an aim to boost domestic

seafood consumption in the coming years to a target

of 14 kilograms per capita. While per capita seafood

consumption across Brazil remains lower than the

world average (9 kilos per capita versus 17 kilos per

capita in 2011), this is up from only 6 kilos per capita

in Brazil in 2006.29 The clear trend here has been an

ongoing increase in seafood demand driven by a

confluence of demographic and government factors.

The Mangue Strategy foresees domestic

competition from other local mangrove crab

processors, as well as international competition

from producers of other crab species.

DOMESTIC COMPETITION

There is currently no industrial-scale processing

plant for mangrove crab in Brazil. The existing

small-scale family producers can sell products in

their home states, but cannot legally commercialize

their products either in other states or inter-

nationally due to food safety requirements.

The current processing companies rely on local

labor to pick the crabmeat manually, with no

companies having made investments into more

efficient means of processing crabmeat with

specialized machinery and technologies. There

are roughly five more government-sponsored

micro-facilities expected to become operational

sometime in the short to medium term, but the

Mangue Strategy does not expect them to have

either modern machinery for processing or the

ability to export products outside their home state.

All existing crab manufacturing and commercial

companies involved in Brazil focus their business

on the local markets, predominantly those in the

northeast of Brazil, where there is existing consumer

demand for crab and crabmeat products.

DOMESTIC MARKET TRENDS

COMPETITION

28 & 29 E. Tallaksen and, T. Seaman,. “Intrafish Seafood Report: Brazil,” Intrafish Media AS, Norway, 2013.

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INTERNATIONAL COMPETITION

In terms of international markets for crab and crab-

meat products, the Mangue Strategy will compete

with producer countries and companies that are

active in crab processing and trade of similar

products. Figure 12 summarizes this international

competition, with the most directly competitive

species, producing countries, and product types

highlighted in gold.

The Mangue Strategy is most likely to compete

with swimming crabs in the crabmeat market, and

with swimming crabs and mud crabs in the whole

crab market, which are both very similar to

mangrove crab in taste and texture. Snow/king crab

and brown crab generally grow in colder waters

and have slightly different physical characteristics.

(See images in Figure 13.)

As such, The Mangue Strategy expects that South-

east Asia, China, and India would be its primary

international competitors. To compete effectively

with these low-cost countries, the Mangue Strategy

recognizes the need to run a highly mechanized

and streamlined processing operation.

FIGURE 12: International Competition

SPECIES GROUP GENUS MAIN PRODUCER COUNTRIES

PREDOMINANT TYPE OF PRODUCTS

CRABMEAT LEGS & CLAWS

WHOLE CRAB

Snow Crabs

King Crabs

Chionoecetes

Lithodidea

China, Japan, Russia, Norway, U.S., Chile

Mud Crabs Scylla SE Asia, China, India

Brown Crabs Cancer Europe, North America, Japan

Swimming Crabs Portunus SE Asia, China, India

Mangrove Crabs Ucides Brazil

• •

••• •

•

• •

FIGURE 13: Competitor Crab Species

Mangrove Crab

Swimming Crab Mud Crab King Crab & Snow Crab

Brown Crab

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THE MANGUE STRATEGY FINANCIAL ASSUMPTIONS AND DRIVERS

REVENUE MODEL

The Mangue Strategy revenue, generated through CEB product sales, is projected to grow from $2.5 million

in its first year of sales in Year 4 to $15.5 million by Year 9 (see Figure 14). International sales are projected

to generate nearly $10.6 million, or 68% of total revenue, with domestic sales comprising the remaining

$4.9 million (see Figure 15).

FIGURE 14: CEB Sales by Destination (USD)

2,000,000

6,000,000

4,000,000

8,000,000

10,000,000

12,000,000

14,000,000

16,000,000

YEAR 4 YEAR 5 YEAR 6 YEAR 7 YEAR 8 YEAR 9

Total Export

Total Domestic

US

D

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FIGURE 15: CEB Domestic Sales by Product Type (USD)

FIGURE 16: CEB Exports by Product Type (USD)

The most important revenue drivers for TMS are

therefore the amount of raw material it can source

to produce crabmeat (which in turn is dependent

on the processing plant’s being able to run

smoothly) and the export price it can receive for

its crabmeat products.

CEB DOMESTIC SALES BY PRODUCT TYPE

CEB EXPORTS BY PRODUCT TYPE

$2,000,000

$2,000,000

$1,500,000

$1,500,000

$1,000,000

$1,000,000

$500,000

$500,000

$3,000,000

$3,000,000

$2,500,000

$2,500,000

$3,500,000

$3,500,000

$4,000,000

$4,000,000

$4,500,000

$4,500,000

$5,000,000

$5,000,000

YEAR 5

YEAR 5

YEAR 6

YEAR 6

YEAR 7

YEAR 7

YEAR 8

Year 8

YEAR 9

YEAR 9

YEAR 4

YEAR 4

Whole Crab, Raw

Whole Crab, Cooked

Claw Meat, Cooked

Leg Meat, Cooked

Body Meat, Cooked

Whole Crab, Raw

Whole Crab, Cooked

Claw Meat, Cooked

Leg Meat, Cooked

Body Meat, Cooked

The crabmeat products, composed of cooked leg,

claw, and body meat, will constitute a majority

of the revenue for both the international and the

domestic segments. These higher-value products

are expected to account for up to $13.2 million,

or 85%, of the company’s total revenue by 2024,

with cooked and raw whole crab comprising the

remainder (see Figure 16).

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FIGURE 17: International Crab Price Reference Points

FIGURE 18: Domestic Crab Price Reference Points

PRODUCT TYPE

PRODUCT TYPES

CRAB SPECIES/ ORIGIN

PRICE BENCHMARK FOB ($/KG NET)

CEB PROJECTED PRICE ($/KG NET)

Whole Crab Raw Frozen Swimming Crab/ SE Asia

$3.5–5.50 $3.65

Cooked Frozen Swimming Crab/ SE Asia

$3.5–5.50 $3.70

Crabmeat Cooked Frozen Claw Meat

Swimming Crab/ SE Asia

$22.0–26.0 $21.50

Cooked Frozen Leg Meat

Swimming Crab/ SE Asia

$15.0–22.00 $16.15

Cooked Frozen Body Meat

Swimming Crab/ SE Asia

$15.0–22.00 $16.15

(FOB = Free on Board price)

PRODUCT TYPE

PRODUCT TYPES

CRAB SPECIES/ ORIGIN

PRICE BENCHMARK FOB ($/KG NET)

CEB PROJECTED PRICE ($/KG NET)

Whole Crab Raw Frozen Mangrove Crab/ Brazil

$2.00–2.50 $2.85

Cooked Frozen Mangrove Crab/ Brazil

$2.00–2.50 $2.90

Crabmeat Cooked Frozen Claw Meat

Mangrove Crab/ Brazil

$16.60 $14.30

Cooked Frozen Leg Meat

Mangrove Crab/ Brazil

$13.30 $11.70

Cooked Frozen Body Meat

Mangrove Crab/ Brazil

$13.30 $11.70

(ExWorks = price of product ex-works or ex-factory in Brazil)

In our analysis, we have assumed an annual 4.5%

price increase in U.S. Dollar terms on products

to be exported internationally as well as on

those destined for the domestic market. As the

international demand market for mangrove crab

is currently untested, CEB has not assumed any

premium in its export price even though it would

be marketed as a sustainably harvested product. To

be able to compete with swimming and mud crabs,

the two closest competitive products, the Strategy

is conservatively assuming that CEB’s export price

will be on the lower end of the export price range

of swimming crabs from the Southeast Asian region

(see Figure 17).

CEB’s domestic prices are also estimated to be similar to current local market prices as set by the existing

processors (see Figure 18).

PRODUCT PRICING

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CEB’s cost of goods sold (COGS) constitute 59% of

the overall operational costs of the Mangue Strategy

by Year 9 (see Figure 19), and of COGS, crab raw

materials comprise 80% (see Figure 20).

CEB is projected to generate a gross profit margin

of 45.4% by Year 9, and is expected to become

profitable on an EBITDA (earnings before interest,

tax, depreciation & amortization) basis by Year 6,

the third year after initial sales, with a targeted

EBITDA margin of above 12.1% in that year

(see Figure 21). EBITDA margins would ultimately

reach 25% by Year 9.

COST STRUCTURE

GROSS PROFIT AND EBITDA MARGINS

FIGURE 19: CEB Projected Operating Cost Allocation FIGURE 20: CEB Projected Cost of Goods Sold Breakout

FIGURE 21: CEB Projected Gross and EBITDA Margins

COGS 59%

Seafood Raw Materials

80%

Processing12%

Personnel 17%

Other Operating Expenses

12%

Fishery Improvement

Program7%

Marketing Promotion, PR

3%

Shipment 1%

Packaging6%

Raw Material Transport and

Production1%Maintenance 2%

CEB PROJECTED GROSS & EBITDA MARGINS

60%

40%

20%

0%

-20.%

-40%

-60%

YEAR 4 YEAR 5 YEAR 6 YEAR 7 YEAR 8 YEAR 9

Gross Margins

EBITDA Margins

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TRANSACTION STRUCTURE

SOURCES AND USES OF FUNDS

The Mangue Strategy proposes a $15.0 million initial greenfield investment, including a Series A investment

of $8.5 million in sponsor equity, $4 million in Program Related Investment (PRI), and $2.5 million in grants.

In addition to the capital investment, the project will eventually seek credit guarantees from development

finance institutions with a strategic focus on the Amazon region or coastal resources, such as USAID’s

Development Credit Authority, Inter-American Development Bank, or OPIC. These guarantee agreements

encourage private lenders to extend financing to underserved borrowers in new sectors and regions.

The table below summarizes the proposed uses of funds and the capital structure of the deal:

USES OF INVESTMENT PROCEEDS

Cash $4,980,000

Buying Stations - CAPEX 500,000

Processing Facility - CAPEX 5,800,000

Fisher Community Trust 2,500,000

FMI Implementation 1,000,000

Financing Fees 40,000

Legal Fees 150,000

Travel Fees and Expenses 30,000

Total $15,000,000

SOURCES OF INVESTMENT PROCEEDS

Foundation Grant $1,250,000

Government Grant 1,250,000

Revolver (BNDES - Subsidized) –

Foundation PRI 4,000,000

Sponsor Equity 8,500,000

Total $15,000,000

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The Mangue Strategy’s capital investments are split

between (a) fishery improvements and community

development activities and (b) the commercial

infrastructure and operations.

The commercial investment would fund the project

and company development, which in the first

18 months will include the preconstruction modeling,

planning, licensing, and design work, followed by

construction of the central processing facility and

10 regional buying stations. Due to the long lead-

times required for establishing new businesses and

developing projects in Brazil, particularly where

foreign investment is involved, the anticipated

facility commercial operation date (COD) is not until

Year 2. However, fishery improvement development

and implementation will kick off immediately, and

be funded in parallel with the commercial activities,

so that the social infrastructure is sufficiently

organized by the time production begins.

Following COD, the project would seek to secure

a revolving credit facility to finance the significant

and highly variable working capital needs of a

business of this nature, but this would be added

to the capital structure in Year 3 (ideally as part

of a loan guarantee package).

While the Mangue Strategy carries substantial

development risk during the first 18 months,

the favorable impact profile of this business,

together with a proven, viable route-to-market

strategy and seasoned management team,

requires an impact oriented equity investor with

long-time horizons (10 to 12 years) and a willing-

ness to take on outsized risk if a commercial

return can be attained, together with a significant

and scalable environmental and social impact.

The share of sponsor equity is assumed to be

about 57% of the total capital contributed.

It is expected that access to commercial lines of

credit are not realistic until the business is fully

operational, and even then will require strong credit

guarantees until the business is able to establish a

five-year track record and achieve a stable credit

profile. However, assuming that credit enhancement

is achieved, a revolving credit facility of $1 million

should be secured to ensure coverage of working

capital requirements, which will be especially

important during the early years. BNDES, the

Brazilian Development Bank, offers subsidized credit

facilities, at a discount of up to 500 basis points

(bps) to the SELIC rate targeted by the Bank of

Brazil (analogous to the Fed Funds Rate in the

U.S., currently at approximately 14.0%).

Though no commercial debt will be sought in the

development of the business, there is an important

opportunity to leverage Program Related Investment

as a source of low-cost capital focused purely on

social and environmental impact. Specifically, this

$4 million tranche would be used to pay for the

fishery management improvements and social

engagement activities, which by themselves are not

a source of financial return. This is critical during

the development phase, as equity would be cost

prohibitive for such early stage noncommercial

investments, yet this is a critical step in ensuring

the long-term impact returns sought by the Mangue

Strategy. By serving as low-cost debt with a patient

time horizon, PRI would enable the project to

develop its impact-oriented activities and pay back

the PRI loan, with interest, out of the commercial

earnings once CEB is fully running. The PRI invest-

ment would constitute approximately 30% of the

investment capital, and while terms will depend

on the funder and specific deal structure, the current

model assumes the entire principal to be repaid at

the end of a ten-year term, with an annual interest

rate of 2.5%.

Because CEB will not be sufficiently profitable to

capitalize the FCT with its own earnings until well

into the project, the Mangue Strategy would initially

capitalize the FCT with $2.5 million in grant funds.

Grant funds are ideally suited for this purpose

given that the FCT would be used to incentivize

and promote primarily conservation rather than

commercial outcomes.

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OWNERSHIP STRUCTURE AND GOVERNANCE

Impact Investors FoundationsFoundations Local Gov’t or DFI

CEB

Buying Stations

FMI Service Providers

Technical assistance and capacity building

Outsource & manage implementation

CDS

Transportation, Processing & Packaging

Sales & Distribution

Raw Materials

Transport

Marketing

Cold Storage Processing

Procurement & Handling

Sustainable Fishing Rewards Program

Fishing Community Trusts (FCT)

CAPITAL PROVIDERS

EQUITY GRANT

EXIT PROCEEDS

FEE

SERVICES

FMI Design + Secure Gov’t

Commitments

Implementation

Monitoring & Compliance

Under Brazilian law, the most efficient structure for

private equity foreign investments is to establish

a Brazilian-domiciled investment shell company

under the “limitada” structure, which would then

make investments into local activities. The sponsor

equity under the Mangue Strategy would own 65%

of the equity and control four of six board seats,

with two seats to management, which will own

15% of the equity. The Fishing Community Trust

would be allocated 20% of the equity and would

hold one board-observer seat, which would rotate

every two years among leaders of that entity.

CEB would also manage the fisheries management

activities, and would engage an advisory committee

made up of academic experts, industry leaders,

policy experts, crabbers, and key buyers. The

advisory committee would exercise no formal

governance over the commercial business, but

would provide a diversity of stakeholder views

to the proposed fishery management activities,

lending credibility to the process and ensuring

effective integrated resource management.

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To be conservative, CEB is assumed to be sold

at a 6x multiple of EBITDA to a strategic buyer

in Year 9. CEB would provide an attractive

opportunity to strategic buyers to lock in

additional supply of high-quality crab meat,

particularly as demand for responsibly and

sustainably sourced seafood increases.

The following table shows a summary of the

most relevant financial, social, and environmental

impact metrics of Project Mangue:

SUMMARY OF EXIT AND RETURNS

SUMMARY OF BASE CASE FINANCIAL RETURNS

Total Sponsor Equity Investment

$8,500,000

Time Horizon (years) 9.0

Total Leverage Level 26.7%

Equity IRR 12.3%

9-Year EBITDA CAGR 26.0%

SUMMARY OF BASE CASE IMPACT RETURNS

Total Marketable Landings Increase (MT)

5,538

Total Avoided Bycatch N/A

Total Habitat Protected (hectares) 195,294

Total Income Increase (%) 33.2%

Total Income Increase to Fishers – 9 yrs

$4,394,889

Contributions to Fisher Community Trust

$2,500,000

Total Fishers Incorporated 1,260

Total Extractive Reserves (RESEX) Engaged

10

Total Communities Engaged 98

Spoilage Reduction (whole fishery) 58.5%

Additional Meals-to-Market (run-rate meals/yr)

2,376,563

9 YEAR EBITDA

3,500,000

2,500,000

(2,500,000)

1,500,000

(1,500,000)

500,000

(500,000)

US

D

Photo credit Agência Pará

YEAR 9

YEAR 8

YEAR 7

YEAR 6

YEAR 5

YEAR 4

YEAR 3

YEAR 2

YEAR 1

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Several key inputs have a particularly pronounced

effect on the financial return of the project. As such,

the model has been forecasted under multiple

scenarios, flexing the following key variables:

Annual Changes in Sales Prices: The cash flows

of CEB are highly sensitive to the changes in

sales price of the finished goods, and as these

prices change over time, the IRR is impacted

markedly. The base case scenario assumes

4.5% growth in export market prices, and 4.5%

price inflation in domestic markets in U.S. Dollar

terms, and the corresponding levered IRR is

12.3%. The management case assumes zero

inflation, leaving the project with a levered IRR

of 2.3%. In the downside case, prices deflate

1% annually upon the start of product sales,

yielding a -4.7 % IRR.

Cost of Raw Materials: is to be expected in any

processing and distribution business, changes in

cost of raw materials have a significant impact

on revenues and returns. The raw materials costs

in the model are based on current prices and

thorough diligence on the costs of crabmeat

harvest in Brazil. The base case assumes 4.5%

raw materials cost inflation. In the management

case, raw material prices remain constant, which

brings the IRR up to 22.1%. In the downside case,

however, assumed 5.5% cost inflation drives

the IRR down to 8.5%.

Capex Investments: Because of the structure

of the strategy and the upfront costs associated

with launching CEB and the associated processing

facility asset, Capex investments constitute a

significant portion of the costs of this strategy.

Whether these costs are higher or lower than

expected naturally affects the IRR. In the base

case, a total of $7.4 million in expenditures is

assumed. In the management case, Capex is

assumed to be 13% lower, at $6.5 million, which

increases IRR by 1.6% to 13.9%. In the downside

case, Capex investment costs are 8.7% above

management case projections at $8.1 million,

decreasing levered IRR to 11.1%.

SENSITIVITY ANALYSIS

BASE CASE LEVERED IRR 12.3%

SENSITIVITY ANALYSIS SCENARIOS IRR IMPACT

Base Downside Management Downside Management

Annual Changes in Sales Price 4.5% (1.0)% 0.0% (4.7)% 2.3%

Raw Material Cost Inflation 4.5% 5.5% 0.0% 8.5% 22.1%

Capital Expenditures (million USD) $7.4m $8.1m $6.5m 11.1% 13.9%

The model has been forecasted under multiple scenarios,

flexing the following key variables: Annual Changes in Sales

Prices, Cost of Raw Materials, and Capex Investments.

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KEY RISKS AND MITIGANTS

The Mangue Strategy presents a range of potential risks that require mitigation or incorporation into the

investment and valuation analysis, as follows:

RISK DESCRIPTION MITIGANTS

Key Risks Impacting Fishery Management Improvements

Reliance on securing government commitments for fishery management improvement success

Prior to investing in commercial operations, the Mangue Strategy would need to secure specific commitments from Brazilian fisheries authorities to (a) establish a system of fisher licensing and registration, (b) increase enforcement resources to reduce illegal fishing, (c) create a cap on total allowable harvest, and (d) prohibit the sale of illegally harvested crab.

The recent disbanding of the Ministry of Fisheries is widely seen as positive step for improving the regulation of the sector. The Strategy assumes that through a combination of this renewed focus on improving fishery management in the country, com-bined with deliberate efforts from local NGOs and the community to advocate for the project, it will be possible to secure these commitments from the government. If this is not possible, the Strategy may need to be attempted elsewhere.

Challenge in identifying and working with the local fishery management improvement partner

It would be CEB’s goal to partner with a trustworthy NGO based in Pará that would act as the local fishery management improvement implementation partner, but this local partner has yet to be identified.

CEB’s commercial operations would not begin until Year 4, affording ample time for the Company to identify the partner, establish relationships with fishing communities, and begin incorporating them into CEB’s sourcing portfolio.

Reliance on fishery management improvement partners

CEB cannot control the fisheries management implementation process, and partners could fail to execute on implementation.

A variety of potential fishery management improvement implementation partners currently operate in the region, allowing the Mangue Strategy to choose the most closely aligned and effective one from among this network.

Crab stock declines, despite efforts to utilize sustainable practices and maintain healthy levels

Community fishery management improvements may fail to protect the stock, or the stocks may be under more pressure than initially accounted for.

The Mangue Strategy will look to other domestic crab fisheries in order to diversify against biological risk, and will work to secure government commitments and work with local and international fisheries experts to gather and employ best-in-class science to inform fishery management efforts.

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RISK DESCRIPTION MITIGANTS

Key Risks Affecting Raw Material Sourcing Volume and Costs

Uncertain supply of labor The Mangue Strategy may find that if and when the Brazilian economy improves, fewer residents want to partake in the unpleasant job of crabbing. This form of employment to-date comes without government benefits and has some negative stigma associated with it. Also, many young workers are moving to the growing cities nearby to find work.

The strategy prioritizes professionalizing the crabbing business and empowering crabbers by facilitating the formation of more cohesive associations of crabbers. Paying higher wages and price premiums may also make the job more attractive.

Localized environmental risks In the Amazon region, there is risk of pollutants entering the mangrove ecosystem due to local stresses on the landscape, such as mining and timber operations.

The Mangue Strategy antici-pates a strengthened political presence as a result of community-building measures in the Strategy. This increased agency may lead to a stronger ability to resist mining and timber operations’ encroaching on the area.

Climate risk There is a possibility of declining catch volumes due to climate change or associated adverse weather events.

The Mangue Strategy will look to other domestic crab fisheries in order to diversify against potential regional effects of climate change and related weather events.

Threats to mangroves/ habitat destruction

Large-scale deforestation is common in the Amazon region, and mangrove forests can be clear-cut or used for other purposes, like aquaculture.

By professionalizing and making more profitable the sustainable extraction of mangrove crab, the Mangue Strategy provides a development model for generating potentially significant economic value from intact mangrove that may deter deforestation.

Key Risks Affecting Revenue

Demand for mangrove crab in the international market is largely untested

The Brazilian mangrove crab is currently only consumed domestically, particularly in northeast Brazil. CEB will be offering mangrove crab as a new seafood product in the international export market.

There is already demand in the international markets that CEB will be targeting, albeit for different crab species. Mangrove crab has a similar taste and texture profile to other mass market crabs, like swimming crab and mud crab. With CEB’s marketing efforts around the high quality and sustainability of its products, CEB should eventually be able to fetch a premium over other competing crab products.

In addition, CEB plans to price its products at the same level as swimming crab, which it sees as its closest competing product and already has demand internationally.

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RISK DESCRIPTION MITIGANTS

Uncertainty around actual volumes of mangrove crab landings and raw material availability

The Brazilian government stopped tracking landings by species and state in 2008. Total raw material available for sourcing by CEB is based on landings data collected through 2007 and local academic infor-mation, both of which may be unreliable and inconsistent.

The CEB business plan assumes that the company would ultimately source a maximum amount of 4,000 mt of mangrove crab per year as the fishery management improve-ment program expands, which falls below estimates of the total extent of the resource across the 10 RESEX zones.

High cost-structure compared to other crab-producing countries

Brazil is one of the most expensive countries in South America in which to do business. The Mangue Strategy anticipates higher labor costs than in swimming crab and mud crab exporting regions, like Southeast Asia, China, and India.

CEB anticipates that having a mechanized and streamlined manufacturing process will make it competitive on cost. Moreover, with CEB’s marketing efforts around the high quality and sustainability of its products, CEB should eventually be able to fetch a premium over other competing crab products.

Lack of barriers to entry in the market

Because the market is currently unoccupied by a company of CEB’s size, in theory another company could attempt to match the scale of CEB and attempt to undercut prices.

The Mangue Strategy prioritizes the development of unique relation-ships with the RESEX communities and offers FCT benefits that other companies would be hard-pressed to match. The local communities also stand to gain significant political capital by participating in CEB’s supply chain and being organized into more formalized fishing communities.

Commodity price risk Crabmeat is a commodity, and mangrove crabmeat is similar enough to its mass-market equivalents that it can also be subject to global price swings.

CEB will pursue branding opportunities and attempt to differentiate the product in order to insulate it against price swings.

Key Risks Affecting Business Execution

Startup and implementation risk Because CEB is a greenfield venture, there are risks associated with the lack of precedent for initiating business in Brazil.

In the early stages of CEB’s business, lots of attention is paid to developing relationships with local entities. Also, the Mangue Strategy would ensure that a network of consultants and a management team with local expertise and experience will mitigate startup risk.

Scaling/growth risk The anticipated rapid growth of CEB presents some uncertainty, as it would in any quickly expanding business.

An experienced management team would mitigate this risk.

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RISK DESCRIPTION MITIGANTS

Operational execution risk Because of poor infrastructure in Pará and the high number of communities, there is significant business execution risk.

The Mangue Strategy tries to address this risk by using buying stations to consolidate pressures on infrastructure and streamline the transport network. This model has been proven in similar ventures in other nations with challenging infrastructure, like the Philippines.

Processing technology specifically for mangrove crab does not yet exist

There are existing crab processing facilities and requisite technology for other crab species but not yet for mangrove crab. CEB will most likely be the first business in the world to adapt existing industrial crab processing technologies to use on mangrove crab.

CEB intends to contract specialists and engineering firms in Chile, Canada, and the U.S. that operate in the spaces of crabmeat processing, crabmeat manufacturing machinery, and plant design. CEB has conservatively allocated almost three years to create and test its processing operations before officially starting commercial manufacturing in Year 4.

Key Risks Affecting General Business Environment

Bureaucracy, corruption, and fraud Despite its economic progress in the last decade, Brazil is still known for its troublesome bureaucracy, especially when dealing with the government, and continues to have pockets of corruption. CEB and the fishery management improvement implementation would have to work with a number of government agencies and local authorities to obtain the necessary support, buy-in, and permits in order to operate and export domestically and internationally. Fraud by local partners and employees is also possible in Brazil.

Given the challenges of working in Brazil, conservative project timelines have been assumed. Moreover, the proposed CEB management team has extensive experience managing seafood businesses in other emerging economies from which valuable lessons can be drawn and applied in the Brazilian context.

Inflation and currency risks The Brazilian economy has weakened since 2011 and its currency has been volatile. In the last five years, the Brazilian Real has fallen against the U.S. dollar. While this could make Brazilian exports more attractive, it has also resulted in high inflation in the country. Average inflation in local currency terms was between 5 and 6% per year for the last three years. 2015 inflation is expected to hit 9%, largely driven by the weakening currency.30

The Mangue Strategy has attempted to make reasonably conservative assumptions in the financial modeling around these parameters, plus a mix of domestic and export markets for the product acts as a hedge against currency and inflation fluctuations. In U.S. Dollar terms, the Mangue Strategy has assumed 4.5% annual inflation, which is reasonable based on local currency inflation of 4%–6% over the past decade.

21 Instituto Brasileiro de Geografia e Estatistica (IBGE), Inflation Statistics 1980–2015, September, 2015.

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THE MANGUE STRATEGY FINANCIAL PROJECTIONS

YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6 YEAR 7 YEAR 8 YEAR 9

# of Fishing Communities – 49 74 98 98 98 98 98 98

# of Fishers – – – 267 485 775 921 1,115 1,260

# of Vessels N/A N/A N/A N/A N/A N/A N/A N/A N/A

SALES VOLUME (mt)

Live Weight Equivalent – – – 640 1,237 2,004 2,402 2,812 3,211

Finished Product – – – 223 406 650 772 934 1,056

REVENUES

Export Sales – – – $1,613,584 $2,677,511 $5,326,478 $6,873,632 $8,571,205 $10,628,024

Domestic Sales – – – 834,667 2,122,465 3,039,755 3,652,790 4,380,515 4,925,401

Total – – – $2,448,251 $4,799,976 $8,366,232 $10,526,422 $12,951,720 $15,553,425

YoY Growth in Sales N/A N/A N/A N/A 96.1% 74.3% 25.8% 23.0% 20.1%

OPERATING EXPENSES

Cost of Goods Sold

Raw Materials – – – (1,080,515) (2,184,332) (3,696,941) (4,631,502) (5,666,001) (6,759,864)

Process & Packaging – – – – (260,548) (495,861) (829,359) (1,029,456) (1,301,058)

Distribution – – – – (31,988) (61,309) (103,692) (129,994) (161,309)

Total COGS – – – ($1,080,515) ($2,476,868) ($4,254,112) ($5,564,553) ($6,825,451) ($8,222,231)

% Sales N/A N/A N/A 44.1% 51.6% 50.8% 52.9% 52.7% 52.9%

SG&A (552,502) (1,011,485) (2,218,687) (2,555,205) (2,473,396) (2,722,688) (2,898,453) (3,073,759) (3,180,483)

EBITDA (552,502) (1,011,485) (2,218,687) (1,480,006) (414,922) 1,013,553 1,837,017 2,749,593 (3,884,320)

EBITDA Margin N/A N/A N/A (60.5%) (8.6%) 12.1% 17.5% 21.2% 25.0%

CAPITAL EXPENDITURES

New Processing Plant – $89,700 $6,550,860 $24,150 $45,540 $3,450 $3,450 – –

New Buying Stations – – 513,388 – 17,197 17,971 18,870 19,625 20,508

Materials and Equipment – – – – 17,197 17,971 18,870 19,625 20,508

FIP CAPEX – – – – – – – – –

Total CAPEX – $89,700 $7,064,248 $24,150 $79,935 $39,392 $41,010 $39,250 $41,016

APPENDIX

With support from:

Bloomberg Philanthropies’ Vibrant Oceans Initiative

The Rockefeller Foundation